The SBA’s 25-year loan product, which had its first funding in July of 2018, reached a milestone last month after its warm reception twelve months ago from small businesses, banks, and investors; the total amount lent under the program hit a face value of $1.04 billion, skimming past the $1 billion funding milestone in the final month of the first year of launch. This figure represents 1,289 fixed-rate 504 loans to U.S. small businesses.
Arguably the 25-year maturity’s success is attributable to the jaw-dropping interest rates, which are fixed for 25 years. Over the past twelve months, the average effective rate* for the 25-year product was 4.96%, only 9 basis points above the 504 loan’s 20-year product’s average fixed effective rate.
SBA 504 Loan Program
The 504 Loan Program is a U.S. Small Business Administration (SBA) loan program facilitated by SBA-certified development companies, which includes Business Finance Capital. Typically, small business borrowers make a 10% down payment, a bank or credit union finances 50% of project costs in the first lien position, and a CDC finances 40% of project cost in the second lien position that is guaranteed by the federal government. This loan program, with 10, 20, and 25-year fixed rate options, is used for commercial fixed assets (land, property, construction, or equipment) with total project costs from approximately $100,000 to approximately $15,000,000.